LKQ (LKQ -17.82%), a leading distributor of alternative and specialty automotive parts, released its earnings results for the second quarter of fiscal 2025 on July 24, 2025. The headline news was a decline in both adjusted earnings per share and revenue, with earnings missing analyst estimates. Adjusted (Non-GAAP) diluted earnings per share was $0.87, compared to the consensus of $0.92. Revenue for the period was $3.64 billion, falling 1.9 % from the same period in 2024. Management assessed the quarter as challenging, with persistent end-market demand softness and shrinking margins prompting a downward revision to full-year 2025 earnings and revenue guidance.
| Metric | Q2 2025 | Q2 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $0.87 | $0.92 | $0.98 | (11.2%) |
| Revenue (GAAP) | $3.64 billion | $3.62 billion | $3.71 billion | (1.9 %) |
| Net Income (GAAP) | $192 million | $185 million | 3.8% | |
| Free Cash Flow (Non-GAAP) | $243 million | $133 million | 82.7% | |
| Segment EBITDA (Non-GAAP) | $430 million | $484 million | (11.2 %) |
Source: Analyst estimates provided by FactSet. Management expectations based on management’s guidance, as provided in Q1 2025 earnings report.
Business Overview and Strategic Focus
LKQ provides alternative and specialty parts primarily for automotive repair, maintenance, and customization. Its offerings include recycled, aftermarket, and remanufactured parts. The company operates across North America and Europe through its vast distribution network, supplying body shops, mechanics, and retailers.
Recently, LKQ has concentrated on several key areas: capturing market share, driving operational efficiency, simplifying its business portfolio, and strengthening its balance sheet. The company has also emphasized strategic divestitures, streamlining of non-core assets, and ongoing investment in private label products and emerging service lines such as mobile diagnostics. Success depends on the ability to maintain service levels, manage inventories, respond to regulatory changes, and control costs while keeping pace with technological developments in the industry.
Quarter Highlights and Operational Developments
The quarter was shaped by continued demand softness, especially in the core North American and European markets. Organic parts and services revenue declined 3.4% in Q2 2025, which was below LKQ’s previous full-year growth guidance for FY2025. Management attributed much of the volume decline to a reduced number of repairable insurance claims in North America, with industry-wide claims down 9% during the quarter. The company was seemingly picking up market share even as overall volumes shrank. In Europe, the company is in the midst of a restructuring effort, focusing on leadership changes and reducing its product catalog (measured in SKUs, or stock-keeping units). Sales in Europe fell by 1.9% in the second quarter of 2025 compared to the same period in 2024. Organic revenue in Europe declined 4.9% in the second quarter of 2025 compared to the same period in 2024.
Profitability metrics showed pressure across most segments. Segment EBITDA margin in Wholesale North America contracted to 15.8% from 17.3% in Q2 2025. Europe segment EBITDA margin was 9.4% in the second quarter of 2025, down from 10.6% a year earlier, and Specialty segment EBITDA margin was 8.5% in the second quarter of 2025, compared to 8.9% a year earlier. The Self Service segment was an exception, with EBITDA margin edging up to 10.0% in Q2 2025. Selling, general, and administrative expenses (SG&A) rose 2.3% in Q2 2025, now representing 27.4% of sales in Q2 2025. The company highlighted cost reduction actions totaling over $125 million in the past 12 months as of Q2 2025, with an additional $75 million targeted for 2025. Despite these actions, negative operating leverage—where declining revenue means costs account for a greater share of sales—kept pressure on overall profitability. GAAP gross margin remained steady at 38.8% in Q2 2025, while share count declined 2.7% in Q2 2025.
Portfolio and capital management efforts continued. LKQ did not announce major acquisitions but continued to divest non-core businesses and reaffirmed its focus on core distribution and nondiscretionary products. Shareholder returns remained steady, with $39 million spent on share repurchases in Q2 2025 and $78 million paid in dividends in Q2 2025. Inventory levels rose to $3.39 billion as of June 30, 2025, even as organic revenue declined 3.4% in Q2 2025 and SKU reductions progressed. Management reiterated no loss of service quality or fill rate as a result of ongoing SKU rationalization in Europe. Private label penetration in Europe is now about 21–22% as of Q1 2025, with a target to increase this to 30% by 2030.
Technological adaptation remained a talking point. LKQ has expanded in areas such as hybrid battery reconditioning and mobile diagnostics services. The company flagged continued volatility tied to tariff changes, with less than 10% of global cost of goods sold subject to direct exposure in 2024, and indirect exposure estimated at around 20% of global cost of goods sold. Management reported that, historically, LKQ has passed tariff-driven costs through to customers, but cautioned that full future impacts remain uncertain.
Financial Outlook and What to Watch Going Forward
Management revised its guidance downward for FY2025, reflecting ongoing demand weakness and continued uncertainty regarding macroeconomic and regulatory environments. New full-year projections for 2025 call for organic revenue growth in parts and services of (3.5%) to (1.5%) (previously 0% to 2%). GAAP diluted earnings per share of $2.47–$2.77 (prior $2.91–$3.21) for the full year 2025, and adjusted diluted earnings per share of $3.00–$3.30 for 2025 (previously $3.40–$3.70). Expected free cash flow (non-GAAP) was also reduced to a range of $600 million to $750 million for FY2025.
The company underlined ongoing cost-cutting and simplification as immediate priorities while signaling that further performance improvements depend heavily on a turn in market demand or successful execution of transformation plans. Investors should keep track of organic revenue stabilization, ongoing margin trends, tariff developments, SKU rationalization, technology investment progress, and working capital management—including inventory levels. Dividend payments remained unchanged in Q2 2025, with $78 million paid; this aligns with the company’s stated policy of capital returns through dividends and buybacks.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
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